Our Daily Saab: Youngman Prolongs The Agony, As "Criminal Consequences" Loom

Death with Dignity apparently does not exist in Victor Muller’s vocabulary, as Reuters reports that the CEO of Saab’s parent company will receive loans from prospective investor Youngman in order to ward off liquidation in Swedish bankruptcy court. Youngman has committed some $97m in bridge loan financing to the troubled Swedish automaker, of which Saab has received $15m so far and will receive more payments this week in order to pay salaries and other expenses. Saab spokeswoman Gunilla Gustavs explains

“We are putting bridge financing in place so we can fund business during the reorganisation — so we don’t incur new debt. We have running costs, such as electricity, that we need to take care of. There are a number of business-critical operations that need to be funded”

Saab’s salaries are currently guaranteed by the Swedish government as part of Saab’s bankruptcy protection, but that guarantee expires on October 21, just before October salaries are due. Missing that payment would likely have spelled the end of Saab, but with Youngman’s money arriving in dribs and drabs it seems that we may be documenting the firm’s undignified collapse for another month or so.

As Bertel has noted, the major blockade to a full investment in Saab by Pang Da and Youngman is the apparent lack of intellectual property that the Chinese government would demand to be part of the deal. Since Saab can not transfer the GM-sourced intellectual property that underpins its current models, a deal is unlikely to take place (not to mention the fact that the Chinese government won’t look kindly at the generous price being proposed for Saab’s battered shares). But it turns out that Saab does have some intellectual property to send to the Middle Kingdom… well, it did anyway. DI.se reports

In exchange for the money Youngman will receive part of Saab’s technical license for its Phoenix platform as collateral. Exactly what is included in the agreement is unclear, but it may be the rear axle with dual electric motors

This Phoenix platform (aka PhoeniX) is intended to underpin the next-generation Saab 9-3, although it’s unclear just how far along development of the platform is. As was previously noted, the technology in question was funneled by Saab to Youngman through a separate Dutch holding company, and the relatively low price paid for the technology indicates that it’s either one component (as DI suggests), or a bargain-basement steal of a deal. But here’s the craziest part: according to Saab, Youngman’s loan means it is practically buying the technology from itself, as a press release at inside.saab.com notes

It is [Saab’s] intention to repay the bridge loan with the proceeds of the EUR 245 million equity investments by Youngman and Pang Da, which are still subject to approval by relevant authorities and parties which [Swedish Automobile, Saab’s parent company] expects to receive during the next weeks.

But if Youngman has already squeezed the only remaining technology out of Saab, and the price for its equity investment is still way out of line with market pricing, China’s government will still spike the deal. That way, Youngman will get the technology without having to take ownership of a firm that few believe has a future left. Besides, there is increasing skepticism on the Swedish side of things as well, where Saab is dependent on a court-appointed administrator to keep the firm out of liquidation. And, according to a DI.se interview with Johan Sölveland, a lawyer involved in the reorganization process, even if the full $97m arrives within weeks, the administrator could still send Saab into bankruptcy.

That the company is completely without cash and do not know how to solve the issue – it is a typical case where an administrator should act. There is normally a prerequisite that there is a liquidity to work with during the reorganization to cope with current costs. In order to restore production, pay creditors and manage commercial requires considerably more capital [than the $97m committed by Youngman]. I can not see any other option than to Saab goes bankrupt [if reorganization is delayed]. Everything indicates that the company has been insolvent for some time. There are significant risks continue to run the company when it is insolvent. It could have criminal consequences.

There are two basic scenarios here: either the administrator loses faith in Saab’s ability to restructure, or a union or supplier creditor can request Saab be placed into bankruptcy. And if Youngman’s $97m isn’t enough to restart production, as Sölveland asserts, Muller and Saab will have very little time in which to find a new investor. And, of course, if China blocks the deal, the game is up anyway. In short, paying salaries next week is the bare minimum required to keep this Saab story rolling, but it’s no guarantee that it will do anything more than delay the inevitable. But with “criminal consequences” possibly hanging over Saab’s managers, expect them to fight for their lives. This could get even uglier…